20231018Comments of the Commission Staff.pdf

DAYN HARDIE ED
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074
[phone]
IDAHO BAR NO.9917
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF ALGOMA WATER'S )APPLICATION FOR AUTHORITY TO )CASE NO.AWS-W-23-01
INCREASE ITS RATES AND CHARGES FOR )WATER SERVICE IN THE STATE OF IDAHO )
)COMMENTS OF THE
)COMMISSION STAFF
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission,by and
through its Attorneyof record,Dayn Hardie,Deputy AttorneyGeneral,submits the following
comments.
BACKGROUND
On March 7,2023,Algoma Water System dba Algoma Water ("Company"or "Algoma")
applied to the Idaho Public Utilities Commission ("Commission")to change rates for its
residential and commercial customers.'The Company proposes to increase rates for residential
customers to $54 per month and increase rates for commercial customers to $89 per month.The
Company's Application includes its rate calculation and several exhibits.The Company did not
The Company's Application was not entered into the Commission's case management system until April 6,2023.
STAFF COMMENTS 1 October 18,2023
effective date in its Application.In a filing made on April 7,2023,the Companyrequested a June
1,2023,effective date.
On April 18,2023,the Commission issued a Notice of Application and Notice of
Intervention Deadline.Order No.35745.No one intervened.
On May 2,2023,the Commission issued a Notice of Suspension of Proposed Effective
Date.Order No.35766.
STAFF ANALYSIS
Staff reviewed the Company's Application,exhibits,invoices,along with the financial
records,previous Commission Orders,and prior Staff audits.Based upon its review,Staff supports
the Company's Application to increase its rates.The Company requested a 100%increase in rates,
from $27 per month to $54 per month for residential customers and from $44.50 per month to $89
per month for commercial customers.The proposed rates would produce annual revenues of
$19,596.The Company proposed a 12%Return on Equity ("ROE")applied to a net rate base of
$61,327.Staff calculated a revenue requirement of $24,567 based on an 11%ROE applied to net
rate base of $62,974.Because Staff's calculated revenue requirement is greater than the
Company's requested revenue requirement,Staff recommends the Commission approve the
Company's request.
The Algoma System
The Algoma water system provides service to customers in the Algoma Addition
Subdivision in Bonner County,Idaho,about four miles south of Sandpoint,Idaho.Currently,the
water system serves 27 active connections.The Company contracts with Water Systems Mgt.,
Inc.("WSM")to operate and maintain the water system.The system components consist of one
production well equipped with a submersible pump that is rated at 90 gallons per minute.While
the pump house has a flow meter to measure total water production,the Company does not
maintain records of the amount of water withdrawn.Despite the pump house being equippedwith
a pressure gauge,the Company does not record water pressure.The water system has a 60,000-
gallon water reservoir and two submersible pumps to distribute water.The distribution system is
composed of 2½-inch,6-inch,and 8-inch PVC pipes.Currently,there are four fire hydrants on
the system and there is an active standard cross connection control program.The Company
STAFF COMMENTS 2 October 18,2023
charges a flat rate to all customers.The Company indicated that it has five connections available
for future usage.The Company expects two of them to be allocated as commercial and the
remaining three will be used for residential use.
System Reliability
There are no known significant deficiencies affecting the safety and reliabilityof the water
system.According to the 2020 Idaho Department of Environment Quality ("IDEQ")Sanitary
Survey,the system maintains satisfactory water pressure.Althoughthe system reliably delivers
water to customers,Staff recommends the Company:
Maintain a regular log of the water pressure starting January 2024;and
Develop and implement a plan to maintain the system's operationinstead of performing
repairs as they arise.
Staff reviewed the most recent IDEQ sanitary survey and believes there are no outstanding
issues or significant deficiencies that impede system reliability.Staff discovered the Company
does not maintain a record of system-level water pressure other than simple checks to determine
whetherthe pressure-level stays in between 40 psi and 60 psi.According to the IDEQ,the pressure
gauge measured at 48 psi during the 2020 sanitary survey,which is sufficient.2 While Staff found
no customer complaints related to system reliability or pressure issues over the previous four years,
Staff believes maintaining a regular record of water pressure level is critical to ensure system
reliability long term.
Staff is concerned with the lack of an adequate plan to maintain system reliability coupled
with the lack of reserve Operation and Maintenance ("O&M")inventorynecessary to facilitate
timely repairs.Staff inquired about the Company's procedures to identify and mitigate system-
related issues and any potential investments to maintain system reliability and integrity.The
Company responded that it fixes issues when needed-but does not proactively perform
maintenance to prevent downtime.Without a proactive maintenance plan,water delivery to
customers may be interrupted or delayed during a major system malfunction.
2 Response to Staff's Production Request No.28.
STAFF COMMENTS 3 October 18,2023
System Efficiency
Staff believes that the electricity expenses are reasonable.However,Staff could not
determinethe water pumping efficiency of the water system on a gallon per kilowatt hour ("kWh")
basis because the Company does not record the amount of gallons used to serve its customers even
though it has a meter that can track the amount of water pumped.Staff recommends the Company
begin recording total water production at least monthly starting January 2024.
Staff requested water production and energy usage historical data.However,the Company
only provided monthly electric expenses (in dollars)from January 2020 to December 2022,and
monthly energy usage (in kWh)for one-year from January 2022 to December 2022.Staff
calculated that in the year 2022,the Company used a total of 14,139 kWh energy at a cost of
$1,560.Compared to previous years,the cost of electricity was less;therefore,Staff concluded
this expense was reasonable.
Pumping efficiency is one of the key parameters Staff uses to determine whether the
Company is producing water at least cost.Because the Companyrecovers electricity costs through
base rates,Staff believes customers should not pay for any additional electricity costs due to any
preventable inefficiencies.In the Commission's Final Order No.30567 of the Company's
previous General Rate Case,Case No.AWS-W-07-01,the Commission ordered the Company to
repair or replace the well house meter and begin monitoringwater usage.Without a monthlywater
production record,Staff cannot determine the pumping efficiency from a volumetric perspective.
Revenue Requirement
The Company's Application proposes a revenue requirement of $27,378,or an
approximately 181%increase.However,the Company only requests a 100%increase to rates.
Had the Company requested an increase to recover its proposed full revenue requirement,Staff
would recommend a revenue requirement of $24,567,or an approximately 153%increase.
Because the Company is only requesting a 100%rate increase,Staff recommends the Commission
approve the Company's request.
The Company's test year revenue consists of 27 unmetered residential and commercial
customers billed at a monthly flat rate.Staff does not propose any adjustments to the Company's
test year revenues.Based upon its analysis,Staff determinedthat the current rates are insufficient
STAFF COMMENTS 4 October 18,2023
to cover the system's operating costs.The Company has operated at a loss for the past six years.
Thus,an increase to rates is reasonable.
Table No.1:Revenue Requirement
Company Staff Revenue
Application Request Requirement
Rate Base $61,327 $61,327 $62,974
Required Rate of Return 12.00%12.00%11.00%
Income Required $7,359 $7,359 $6,927
Income Realized $(5,751)$1351 $(4,095)
Income Deficiency $13,110 $7,224 $11,022
Net Operating Income Deficiency $13,110 $7,224 $11,022
Gross Up Factor 1.35 1.35 1.35
Total Incremental Rev.Req.$17,652 $9,727 $14,840
Revenues at Existing Rates $9,727 $9,727 $9,727
Total Revenue Requirement $27,378 $19,453 $24,567
Percent Increase 181.48%100.00%152.58%
i Number is imputed to calculate a revenue requirement at 100%increase to rates.
OperatingExpenses
The Company's operating expenses consist of five accounts:Contract Services
Professional,Contract Services Water Testing,Purchased Power,Materials and Supplies -
Operations and Maintenance,and Miscellaneous Expenses.
The WSM has infused cash into the Company to help purchase assets and cover operating
expenses.The intent was to offset yearly losses.According to Company's 2022 Annual Report,
it owes WSM $58,218.77.See Annual Report Page 8,Line 10.The Company has not requested
recovery of any monies owed to WSM.Because it does not seek recovery,Staff does not
recommend including it as an advance or as a debt.If taking on debt from WSM,the Company
must adhere to Idaho Code §61-901 et al.and receive Commission approval first.
Staff adjusted the Company's expenses to properly calculate working capital,which is a
component of rate base.Regardless of the Company not requesting a full revenue requirement as
STAFF COMMENTS 5 October 18,2023
outlined in its Application,Staff recommends adjustments of $1,655.67.Staff adjusted items
including:annualizing water testing expense,taking out the proforma PUC fees from the
miscellaneous account,depreciation expense,amortization expense,and regulatory fees.See
Attachment A -Summary of Staff Adjustments.
Contract Services Professional Expense
The Company contracts with WSM to manage its water system.WSM bills the Company
monthly for various O&M expenses.In 2022,the Company recorded $3,250.35 in total Contract
Services Professional Expenses.Staff reviewed all invoices for 2022,including the following:
system operator compensation,repair expenses,emergency services,and other O&M expenses.
Staff believes the Contract Services Professional expenses were prudentlyincurred and necessary
for providing service to customers.
Purchase Power Expense
The Company receives monthlyinvoices from Avista Utilities for electric service.Staff
reviewed all electric utility invoices for 2022 and confirmed that all Purchased Power expenses for
test year 2022 were prudent and reasonable.
Miscellaneous Expenses
The Company uses the miscellaneous expense account to book various O&M expenses,
which consists primarily of office supplies,dues,and fees.Staff reviewed the account and
associated Contract Services Professional invoices,and believes the expenses are prudent and
necessary for providing service to customers,except for one fee.During review of the invoices,
Staff identified a Commission assessment fee of $50.The Company is already seeking recovery
of $54.62 assessment fee to be included.Thus,Staff recommends removing the $50 entirely.
Operations &Maintenance Expense
The Company uses the O&M expense account to book various expenses which consists
primarily of equipment expenses,repairs,and maintenance to equipment.Staff reviewed the
account and associated invoices and believesthe expenses are prudent and necessary for providing
service to customers.As mentioned above,Staff recommends the Company maintain inventory
STAFF COMMENTS 6 October 18,2023
on hand for emergency repairs.In responses to Staff's Production Requests,the Company
explained that it has no extra money to purchase extra parts,but hopes this rate increase will allow
a reserve.The Company shared with Staff that it believes most of the major components of the
water system have been fixed and hopes no other large equipment expenses are incurred in the
near future,which is why the Company believes a 100%rate increase is enough.
Water Testing Expense
The Company requested an annual water testing expense of $1,916.83.Consistent with
past Commission practices,Staff recommends a nine-year average of water testing expenses to
reflect the inconsistent frequencyof many of the required tests.Staff recommends a water testing
expense of $770.56,or a decrease of $1,146.27.See Attachment B -Water Testing.
Regulatory Fees
The Company requested an annual Commission assessment fee of $54.62.Applying the
Company's requested revenue requirement,the annual assessment fee falls below the minimum
$50 fee.Thus,Staff recommends a $50 assessment fee,or a decrease of $4.62.
Depreciation Expense
In its Application,the Company included a depreciation expense of $1,932.66.However,
Staff has recalculated the Company's depreciation using the National Association of Regulatory
Commissioners ("NARUC")Depreciation Manual for Small Water Utilities.After evaluating
depreciable life,Staff recommends a depreciation expense of $1,691.35,a reduction of $241.31.
See Attachment C -Depreciation Adjustment.
Amortization Expense of Contributed Capital
In the Company's prior case,the Commission deemed all plant in service as contributed
capital,or Contributions in Aid of Construction ("CAIC").During Staff's review,the Company
did not amortize the contributed capital.Amortizing contributed capital using the same
depreciation rate as the associated contributed plant will avoid creating a negativerate base when
the plant items become fully depreciated.Staff recommends that the Company continue to
STAFF COMMENTS 7 October 18,2023
amortize the contributed capital.Staff recommends that the Commission approve an annual
amortization expense of negative $213.46.
Rate Base
Since its last general rate case,the Company added new capital assets to the system.In its
Application,the Company requests a plant-in-service of $72,354.56,accumulated depreciation of
$12,692.50,and working capital of $1,664.63.After Staff's review,as outlined below,Staff
recommends an adjusted rate base of $62,973.76.Table No.2 outlines Staff's adjustments to the
Company's rate base.
Table No.2:Rate Base
Application Staff Adj.Total
Plant in Service $72,354.56 $72,354.56
Less Accumulated Depreciation $12,692.50 $(5,441.85)$7,250.65
Net Plant in Service $59,662.06 $65,103.91
Contribution in Aid of Construction -$(3,645.24)$(3,645.24)
Working Capital $1,664.63 $(149.53)$1,515.09
Total Rate Base $61,326.69 $62,973.76
Plant in Service
The system was purchased in 2008 and all plant-in-service was considered contributed
capital.The purchase price for the system was not recorded as rate base,has not earned a return,
and was not recovered in rates.Staff recommends a net plant-in-service of $65,103.91.This
includes plant-in-service of $72,354.56,and accumulated depreciation balance of $7,250.65.
Capital Additions
In its Application,the Company requested recovery of $14,508 for a reservoir pump,
$4,721 for miscellaneous fittings,and $2,135 for check-valves.Staff reviewed the investments
and believes they were necessary and prudentlyincurred.In 2012,the Company listed $15,066 of
actual costs for Account No.331 -Transmission &Distribution Mains &Accessories for
STAFF COMMENTS 8 October 18,2023
recovery.Staff recommends that the $15,066 be included in plant-in-service for recovery in this
case but the Company needs to keep appropriate documentation-including invoices-so Staff
can properly review its investments.
In total,the Company added $36,430 to plant-in-service.Staff received invoices and
agrees that these purchases were prudent and should be included in plant-in-service.
Pro Forma Adjustments
In its Application,the Company requested to include $4,498 for new pressure tanks.
Through responses to Production Requests,Staff learned that the previous pressure tanks failed in
2023,and the Company had to replace them.Staff reviewed the Company's response to
Production Request and supports the Company's request to include the $4,498 as a pro forma
adjustment to plant-in-service.The pressure tanks will be used and useful and in operation by the
time rates are in effect.
Accumulated Depreciation
The Company began recording accumulated depreciation when it incurred capital
expenses.However,capital additions had not been depreciated using appropriate depreciable
lives.Staff recommends using depreciation lives provided in the NARUC Depreciation Manual
for Small Water Utilities.Staff recalculated depreciation expense and the associated accumulated
depreciation on the capital additions.Staff recommends an accumulated depreciation balance of
$7,250.65,as outlined in Table No.3 below.
STAFF COMMENTS 9 October 18,2023
Table No.3:Accumulated Depreciation
Acct #Description Application Staff Adj.Total
304 Structures and Improvements $764.83 $(437.05)$327.78
307 Wells $594.09 $(451.51)$142.58
311 Power Pumping Equipment $3,293.58 $(583.02)$2,710.56
330 Dist.Reservoirs &Standpipes -$620.63 $630.63
331 Trans.&Dist.Mains &Accessories $8,040 $(4,590.91)$3,449.09
Totals $12,692.50 $(5,441.85)$7,250.65
Contributions in Aid of Construction
The Company's net plant-in-service balance is offset by contributed capital,or CIAC,as
established in a prior case.In the Company's 2007 rate case,the company agreed that all current
plant-in-service was provided throughCIAC.The amount of CIAC in 2007 was $6,847.16.Since
then,the Company has not amortized this CIAC.Staff previouslyrecommended setting an annual
amortization expense of $213.46,which will amortize the CIAC at the same rate as the
depreciationon the associated contributed plant.By amortizing CIAC,it will ensure the Company
avoids a negative rate base.Thus,Staff recommends a CIAC balance of $3,645.24.See Table
No.4 -CIAC and Attachment A -Summary of Staff Adjustments,Column 2.
Table No.4 --CIAC
Staff Adj.
Case No.AWS-W-07-01 $(6,847.16)
Total Amortized CIACI $3,201.92
Total $(3,645.24)
I Amortized through end of 2022.
Working Capital
Staff recommends using the 1/8th method for determining working capital.The Company
requested $1,664.63 for a working capital allowance.This method is commonly used by other
small water utilities in Idaho without the capability of performing a more complex analysis.
STAFF COMMENTS 10 October 18,2023
Applying Staff's adjustments to O&M expenses,Staff also decreases the Company's requested
working capital.Staff recommends a working capital of $1,515.09,or a decrease of $149.53.
Rate of Return
The Company is entitled to earn a reasonable return on its investments in rate base.If a
utility has no authorized debt,then the rate of return is determined based on capital attributable to
its equity.The Company is requesting a 12%ROE.In Order Nos.33658 and 33910,similar water
utilities were authorized an 11%ROE.Staff recommends a ROE of 11%.
Rate Design
The Company proposes an unmetered monthly flat rate of $54,for its 22 residential
customers,and $89 for its five commercial customers.Staff recognizes the Company's desire to
keep rates simple and because the system is not individually metered,Staff believes that
maintaining a flat rate design is appropriate.Thus,Staff recommends using the Company's
requested rate structure and flat monthlyrates.
The Company's proposed rates equate to a 100%increase across both customer classes.
The Company's proposed rates will not generate the Staff's revenue requirement of $24,567.The
proposed rates will only generate $19,596 as requested by the Company.See Table No.5 -Rates.
Table No.5:Rates
Annual
No.of Current Current %Revenue
Customers Rate Revenue Application Increase Generated
Residential 22 $27.00 $7,128 $54.00 100.00%$14,256
Commercial 5 $44.50 $2,670 $89.00 100.00%$5,340
Total Revenue $9,798 $19,596
CONSUMER RELATIONS
Customer Notice and Press Release
The Company's Application did not include a copy of the customer notice or press release.
Staff contacted the Company and a copy of the customer notice and verification of publication of
the press release were filed June 6,2023.The customer notice was dated April 18,2023,and the
STAFF COMMENTS 11 October 18,2023
press release was published April 28,2023,in the Bonner County Daily Bee.The customer notice
and the press release satisfy Rule 125 of the Commission's Rules of Procedure,(IDAPA
31.01.01.125).
Customer Workshop
The Commission provided public notification for a customer workshop through an October
4,2023,news release.A virtual public workshop was held for customers on Wednesday,October
11,2023.beginning at 5:30 pm PDT with one customer attending.
Customer Hearing
The Commission scheduled a customer hearing for Wednesday,October 18,2023,at 1:00
pm PDT at the Sandpoint Community Hall,204 S.lst Avenue,Sandpoint,ID 83864.Public
notification for the hearing was provided through an October 4,2023,news release.
Customer Comments
As of October 12,2023,two customers had filed comments.Both customers are upset at
the 100%requested increase in water rates.One of the customers asked the Company to create an
action plan for the future improvements and follow up with customers as work proceeds.
CompanyTariff
The current Company tariff dates to the last rate case in 2008.Minor changes have been
made to the Commission's Model Tariff utilized by small water companies since then,and Staff
recommends that the Company submit a revised tariff within 15 days of the final order.Staff is
willingto assist the Company in updating its tariff.
STAFF RECOMMENDATIONS
Based on its review of the Company's Application and response to discovery,Staff
recommends the Commission approve Company's requested rates,establish an 11%ROE,a net
rate base of $62,974,and order the Company to:
Record total water production at least once every month starting January 2024;
Maintain a regular log of the water pressure starting January 2024;and
STAFF COMMENTS 12 October 18,2023
Respectfully submitted this 18th day of October 2023.
Dayn Hardie
Deputy AttorneyGeneral
Technical Staff:Laura Conilogue
Shubhra Deb Paul
Chris Hecht
i:umisc/comments/awsw23.lcs1c comments
STAFF COMMENTS 13 October 18,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 18*DAY OF OCTOBER 2023,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF TO
ALGOMA WATER COMPANY,IN CASE NO.AWS-W-23-01,BY MAILING A
COPY THEREOF,POSTAGE PREPAID,TO THE FOLLOWING:
BOB HANSEN JEFF COWLEY
ALGOMA WATER SYSTEM E-MAIL:
67 WILD HOURSE TRAIL jeff.cowley usa.com
SANDPOINT ID 83864
E-MAIL:wsmibob aol.com
SECRETAI
CERTIFICATE OF SERVICE